Interdealer brokers (IDBs) occupy a unique and often misunderstood position in the capital markets ecosystem. They are not dealers themselves — they do not take positions or provide prices to end clients. Instead, they act as intermediaries in the interbank market, connecting banks that want to buy with banks that want to sell, earning a brokerage fee for facilitating the match. Understanding how IDBs work illuminates a significant structural feature of the OTC derivatives, government bond, and money markets.
The IDB Role: Voice Brokering Between Banks
In a large bank's markets business, traders in government bonds, interest rate swaps, FX, credit, and repos maintain positions that they need to manage. Sometimes, a trader wants to execute a transaction but does not want their counterparty to know they are the buyer or seller — because revealing the trade would move the market against them. This is where the IDB steps in.
The IDB runs a phone or electronic service connecting multiple bank dealers. When Trader A at Bank X wants to sell a specific gilt, they call the IDB broker assigned to that market. The broker then works their contact list — calling Trader B at Bank Y, Trader C at Bank Z — until they find a buyer. When a match is found, the trade is confirmed: the two banks trade with each other, and the IDB earns a commission (typically a fixed fee per million notional, or a basis point spread, depending on the product).
The key feature of the IDB model is that the two trading banks often do not know who their counterparty is until the trade is agreed. The broker may run the market on a "named" basis — where the counterparty is revealed before the trade — or on an anonymous basis, where names are exchanged only after execution ("give-up"). This protects the identity of the trading banks and reduces the risk of front-running.
The Major IDB Firms: TP ICAP, Tradition, BGC
The IDB industry is dominated by a small number of large firms:
- TP ICAP (formed by the 2016 merger of ICAP and Tullett Prebon) is the world's largest interdealer broker, with broking desks covering interest rate derivatives, credit derivatives, FX, government bonds, repo, equities, and energy and commodities. TP ICAP's Parameta Solutions division also provides financial data and analytics. The firm operates across multiple geographies and product lines, employing several thousand brokers globally.
- BGC Partners (a subsidiary of Cantor Fitzgerald) covers similar markets with a significant presence in government bonds, money markets, and OTC derivatives. BGC has invested heavily in its electronic broking platform, eSpeed (now part of BGC's Fenics platform), and has been an active acquirer of smaller IDB operations.
- Tradition is the third major player, with particular strength in money markets, FX, and derivatives. Tradition is part of the Swiss Compagnie Financière Tradition group and operates a hybrid voice-electronic model.
Hybrid Voice/Electronic
The IDB industry has undergone significant structural change as electronic trading platforms have taken over portions of the market previously brokered by voice. In the most liquid segments — on-the-run US Treasuries, EUR/USD spot FX, benchmark interest rate swap tenors — electronic matching has largely replaced human brokers. In less liquid markets — off-the-run bonds, emerging market currencies, complex OTC derivatives, repo in specific collateral — voice broking remains important because the human broker can navigate the complexity of finding the right counterparty and negotiating non-standard terms.
All major IDBs now operate hybrid platforms: voice brokers supported by electronic tools that allow clients to request prices, see indicative markets, and in some cases execute electronically. TP ICAP's iSwap platform, for example, operates a hybrid model for interest rate swaps — voice brokers use electronic workflows to process and confirm trades agreed verbally, while some portions of the flow move entirely onto the electronic matching platform.
Name Give-Up vs Anonymous
In a name give-up trade, the identities of the two banks are revealed to each other after the trade is matched but before settlement. Both banks need to have mutual credit lines — approved bilateral trading limits — for the trade to proceed. If one bank does not have a credit line with the other (because the second bank is too small, or too risky, or simply not on the approved counterparty list), the trade cannot be consummated even if the economic match has been found. This is a significant operational constraint in markets where the credit web is incomplete.
In anonymous brokering — more common in certain standardised products and increasingly the norm where central clearing is mandated — the counterparty is not revealed at all. The trade novates directly to the central clearing house (such as LCH or CME Clearing), which becomes the counterparty to both banks. This eliminates the need for bilateral credit lines and has greatly reduced the barriers to participation in certain IDB-brokered markets.
IDB Revenue Model
IDBs earn revenue through brokerage commissions — charged to both sides of a matched trade, or sometimes only to the "aggressor" (the bank that was responding to the broker's market rather than providing it). Commission rates vary by product and have been under sustained pressure from electronic competition and regulatory scrutiny. In the most commoditised products, electronic platforms charge a fraction of what voice brokers earn for the same notional. IDBs have responded by focusing on higher-margin, less commoditised markets and by developing ancillary data and analytics services.
MiFID II Impact on IDB Transparency
MiFID II introduced pre-trade and post-trade transparency requirements for many instruments traded on EU platforms, including those operated by IDBs that operate as Organised Trading Facilities. This created compliance costs and, in some cases, required IDBs to publish information about executed trades that they had previously kept confidential. The transparency requirements also affected the economics of certain IDB markets — pre-trade price disclosure reduces the information advantage that brokers held and potentially cannibalises voice brokering by making it easier for clients to find liquidity directly.